Cable Operators

Comcast Records TiVo Deal

3/20/2005 7:00 PM Eastern

Comcast Corp. hasn’t had much trouble selling digital video recorders. The nation’s largest cable operator took more than 180,000 DVR orders during the fourth quarter, and president Steve Burke predicts the service will pick up an additional 1 million subscribers in 2005.

So why did Comcast strike a DVR-distribution deal with TiVo Inc. last week, after resisting overtures for more than five years from the firm that truly put time-shifted TV on the map?

Comcast senior vice president of digital television Mark Hess said the company expects it will be able to drive increased distribution next year of Motorola Corp. DVRs, which will be able to offer subscribers more advanced features such as program recommendations and interactive advertising, thanks to TiVo software.

By waiting so long to strike a deal with TiVo — which suffered a major setback in January, when DirecTV Inc., its largest distributor, announced plans to manufacture its own DVRs — Comcast was able to secure very favorable terms with its agreement.

While TiVo collects about $1.25 per month for every DirecTV customer that uses a TiVo receiver, Comcast will pay less than $1 per month for customers using the vendor’s product, a source said. The fees Comcast pays will decrease as more customers take the TiVo set-tops.

Hess said the decision was also rooted in providing customer choice.

“We have a lot of expertise in video-on-demand. They [TiVo] have none. They have a lot of experience in DVRs, and we’re just getting started,” Hess added. “And at the end of the day, it’s about on-demand television and helping customers watch what they want, when they want it.”

The deal was negotiated for TiVo by vice chairman Tom Rogers, a former NBC Cable president who is also leading the search for a new CEO to replace Mike Ramsay, who plans to step down later this year. Rogers said the company recognized a Comcast deal was key, but stressed that the MSO also needed TiVo.

“TiVo did come to recognize just how much muscle Comcast was putting behind marketing advanced digital television service … and therefore, how important it would be to be a part of those packages. And I think Comcast came to recognize that just because you have a DVR, it doesn’t mean you’re providing your customers with what they really want,” Rogers said.

Comcast said it expects to deploy Motorola DVRs running TiVo software by mid-to-late 2006. Under the terms of the initial seven-year contract, which begins once TiVo software is successfully integrated with the Motorola boxes, the MSO will pay TiVo an upfront fee and recurring monthly fee for each Comcast customer that gets the TiVo service.

Comcast has rights to extend the seven-year deal for an additional eight years, through additional one-year terms.

The software will enable popular TiVo features such as “WishList” searches, Season Pass recordings, and will also allow Comcast customers to use the new TiVoToGo application to transfer programs from DVRs to laptop computers.

Comcast currently charges subscribers about $10 per month to lease DVRs, while TiVo charges customers that purchase its standalone DVRs $12.95 monthly.

Hess said Comcast hasn’t determined the pricing for the TiVo offer, and that the MSO may or may not charge a premium for the service.

Forrester Research analyst Josh Bernoff expects that Comcast will attempt to push TiVo to all of its customers, and that the MSO will stop selling its generic DVR service once the TiVo-enabled Motorola set-top boxes are available.

“I think there’s a chance that [Comcast] will just give it to everybody,” Bernoff said, noting that the ad revenue Comcast and TiVo stand to gain would increase with wider penetration.

In addition to the advertising “showcases” that TiVo sells, Rogers said TiVo would generate revenue by delivering messages to viewers, even when they fast-forward through an ad. TiVo can do that by running a banner ad over the commercial that is skipped, or some other message that depicts the offer in the ad.

Comcast has suffered some growing pains with its DVR rollouts. Subscribers in the San Francisco Bay area and in other systems recently complained about the picture on their TVs freezing and other glitches.

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